Atty. Jun de Zuñiga
Loans granted by banks are generally evidenced by promissory notes issued by the borrowers. These notes contain the unconditional promise by the borrowers to pay on demand or at a future date a definite sum of money. These loans may either be secured or unsecured. Secured loans are those which are supported by collaterals such as mortgages. Unsecured loans are those which are not backed up by collaterals and are commonly referred to as “clean” loans.
Speaking of mortgage, it is defined as an instrument constituted for the purpose of giving the lender a lien on a property as a guaranty for the repayment of the loan. In case of default, the lender would then have the option to foreclose on the mortgage and subject the property to a public auction for the lender to recover the amount loaned.
What then are the characteristics of a mortgage in relation to the promissory note?
What is basic is that the mortgage is merely an accessory contract to the promissory note. It cannot exist by itself. If the promissory note is void, so also is the mortgage. If the promissory is discharged and extinguished, the mortgage is likewise discharged and extinguished. On the other hand, the promissory note can exist independently without any accompanying mortgage. If the mortgage is declared invalid, it does not necessarily mean that the promissory note is also invalid. The contract of loan may still be valid (Nat. Bank vs. Rocha, 55 Phil. 496)
In a certain case, the Supreme Court declared the foreclosure on a mortgage invalid because of the evidence that the loan secured by the mortgage has been completely paid before the foreclosure (PNB vs. Court of Appeals, et., GR 126903, January 15, 2003). Where the promissory note and mortgage have been assigned by a bank to another bank, and where the assignor-bank (as collection agent) subsequently received payment from the borrower but without such payment being remitted to the assignee-bank, the latter would already lose the right of foreclosure since the payment automatically discharged the mortgage. The assignee-bank may just have to initiate a separate action against the assignor-bank for the non-remittance.
An exception to the foregoing rule is a mortgage given to secure future advancements. This is true in revolving credits whereby a bank agrees to give loans up to a specific amount and within a specific period, from which the borrower may draw and pay availments from time to time. The Supreme Court held that mortgages given to secure future advancements are valid and legal if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered (Mojica vs. Court of Appeals, G.R. 94297, Sept. 11, 1991).
It is not necessary that the borrower be also the mortgagor. The mortgagor can be a third party who is willing to accommodate a lien on his property to secure the indebtedness of another person. However, the mere execution of the mortgage does not make such mortgagor personally liable for the debt and he cannot be compelled to pay the deficiency remaining after the mortgage has been foreclosed (Phil. Trust Co. vs. Exchaus Tan Siua, 52 Phil. 852). The same principle should apply where there are subsequent revisions in the promissory notes or increases in the loan amounts beyond those made known to the mortgagor at the time he agreed to execute the mortgage. Unless he consented thereto, the mortgagor cannot be bound by new obligations assumed by the borrower.
The above comments are the personal views of the writer. His email address is [email protected]